Cash Flow Trouble: Waffle Store Blames Groupon for Demise

Bonnie Kavoussi, The Huffington Post

Published 3:44 PM ET Tue, 24 July 2012
The Huffington Post

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Groupon

Another Groupon user bites the dust.

Back Alley Waffles, a new restaurant in downtown Washington, D.C., has shut its doors after just roughly three months in business, and it is blaming a Groupon deal gone bad. To recoup losses, Back Alley Waffles says it is now charging $450 each for waffles by appointment.

Groupon defends its daily deals.

"Due to the shocking business practices of an obscenity known as 'Groupon' — contemptible even by the nearly non-existent standards of the modern corporation — I can no longer afford to sell waffles for $8.00 and still pay, for example, my employees something north of a subsistence wage," Back Alley Waffles said on its website.

Back Alley Waffles complained that Groupon did not pay them money that was owed to them right away. Instead, the website said, after more than a month, Groupon sent them the first of three payments by check, even as "the big surge in customers" forced Big Alley Waffles to pay for the food and labor right away.

"This spot is about to blow up. They make AMAZING waffles," one Yelp reviewer wrote in early June. The main problem mentioned in the reviews: The restaurant sometimes ran out of waffles.

The owners of Back Alley Waffles are not alone in regretting their use of Groupon. Jessie Burke, the owner of Posies Cafe in Oregon, wrote in September 2010 that using Groupon was "the single worst decision I have ever made as a business owner thus far." She said that the Groupon deal cost her nearly $10,000, caused huge lines, and did not result in new regular customers.

Groupon maintained that its daily deals were not the cause of Back Alley's closure. "According to our records, only 132 Groupons, or 18 percent have been redeemed since Back Alley ran [its deal] two months ago, and Mr. Nelson has received 2/3 of his share of the revenue to date," wrote Julie Mossler, a Groupon spokeswoman, in an email to The Huffington Post. "We always hate to hear that a local business has decided to close," Mossler added, "but the math does not point to Groupon as the cause."

Only 44 percent of daily deals for restaurants and bars are profitable for the businesses, according to a study by Rice University released earlier this month.

Groupon itself is having trouble. Its stock price hit a record low on July 11. At the end of Monday, Groupon's stock was worth $7.38 per share: 63 percent below its IPO price. That's partly because Groupon used to use questionable accounting: Until last September, Groupon's reported revenue included money owed to merchants as if it were its own. Nowadays, Groupon's profit outlook is less rosy.